AIG Sells $6 Billion AIA Shares to Help Repay Bailout

By Noah Buhayar and Bei Hu

American International Group Inc. (AIG), the bailed-out insurer, is selling as much as $6 billion worth of AIA Group Ltd. (1299) shares to unidentified institutional investors to help repay a U.S. government rescue.
AIG is offering about 1.7 billion shares at HK$27.15 to HK$27.50 a share, according to a sales document obtained by Bloomberg. The offering price represented a discount of as much as 7 percent on AIA’s closing price of HK$29.20 on March 2. The shares are expected to be priced no later than tomorrow.
The proceeds of the sale will be used to reduce obligations to the U.S. Treasury Department that swelled to $182.3 billion, New York-based AIG said yesterday in a statement.
AIG sold about two-thirds of Hong Kong-based AIA in a 2010 initial public offering to help repay the bailout. The remaining stake in the Asian insurer, with a market value of more than $14 billion, is part of the collateral backing obligations to the Treasury. Chief Executive Officer Robert Benmosche said last month that AIG may wait to sell its AIA stake and use the money to reduce the government’s 77 percent ownership.
“AIG needs the money to repay the government,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “For holders of the Hong Kong- listed company, it starts to remove a known overhang so it’s a long-term positive but short term it hurts.”

Owing the Treasury

AIG held 3.96 billion shares, or a 33 percent stake, in AIA as of May 31, according to the latter’s interim report last year. The U.S. company has agreed not to sell its remaining shares in the Asian insurer for 180 days, according to the sales document today.
The Treasury sold 200 million AIG shares on May 24 for $29 each. The government must receive an average of at least $28.72 a share to recoup its investment. AIG shares surged 28 percent this year to $29.80 on March 2, as the insurer reported fourth- quarter profit of $19.8 billion tied to a tax benefit. The stock closed above the government’s break-even price on Feb. 28 for the first time since July. AIA has climbed 20 percent to HK$29.20 this year through March 2.
As of Dec. 31, AIG owed the Treasury $8.4 billion to redeem interests in special-purpose vehicles related to its rescue, according to a presentation on the insurer’s website. Collateral backing the government’s stake in the obligations includes the AIA holdings and plane-leasing unit International Lease Finance Corp.
“We can think about using the proceeds if we decide to sell AIA potentially for capital management,” Benmosche, 67, said at a Feb. 15 investor conference in New York. “Capital management means we can buy some of the overhang from the U.S. Treasury.”
To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net
To contact the editor responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net